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November 3, 1999

NEC Pulls Packard Bell NEC From US PC Market

By CBR Staff Writer

By Siobhan Kennedy

Having pumped millions of dollars into its troubled Packard Bell NEC unit, parent company NEC Corp yesterday effectively threw in the towel and all but ceased operations, announcing plans to shut down the group’s manufacturing plant and cut its workforce, including the majority of its senior management, by 80%. Although some 300 to 400 staff of the 26,000 will remain, the drastic measures effectively signify the exit of the Packard Bell NEC brand from the US retail computer market, which has been increasingly struggling over the past few years amid pressure from giants Compaq, Hewlett-Packard and Dell. The job cuts will include the removal of Alain Couder, the former Bull executive who ran the Packard Bell NEC venture for the last year and a half, and 12 of the unit’s 13 most senior management staff.

No official statement was issued by either NEC Corp or its partner Groupe Bull of France but Ron Fuchs, a spokesperson for Packard Bell, who will also lose his job in the cuts, told ComputerWire that the unit’s inability to drive up profits to meet shareholders’ expectations forced the company to initiate the restructuring process.

Over the last few years NEC and Bull have pumped over $2bn into Packard Bell in a bid to raise the unit’s profile in the US. Despite that, Fuchs said that Packard Bell had posted losses of more than $1bn in 1997 and 1998 and had been told by NEC, which owns 88% of the unit, to post a loss of no more than $100m for 1999. Although the losses for 1998 were $650m, we did $500m in 1999, which was much better than previous results but still means we’re on track for a loss of $150m.

For that reason, Fuchs said the division has been forced to close down its manufacturing plant in Sacramento, California by the end of the year, which will account for the loss of about 1,400 jobs. The manufacturing activities will be outsourced to a third party which is yet to be named, he added. About 600 jobs will go as a result of the closure of Packard Bell’s call center in Magna, Utah and the staff are all expected to be transferred to the new owner, Fuchs said. In addition, the unit will cut its administrative staff by several hundred employees. The only management member to remain will be the executive in charge of commercial computer sales.

While the moves mark the end of Packard Bell’s presence in the US PC retail sector, Fuchs said the unit was currently exploring plans to sell hardware over the internet, although he declined to be more specific. Fuchs added that the Packard Bell brand name will continue in Europe where it still enjoys a good reputation and strong sales. He said one of the reasons for the unit’s failure in the US was because it could no longer afford to build PCs in an increasingly competitive market dominated by the likes of Compaq, HP and Dell. In Europe, we never kept our eyes off the ball in terms of quality and service, he said. But over here we made mistakes, which have now snowballed to the point where the brand’s image has significantly changed for the worst.

One analyst with a large investment bank in New York said the announcement was no surprise at all. The sales have been slipping consistently and the product quality has never been that great, he said, Compaq, Hewlett-Packard and those other guys were just slowly taking them out.

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The analyst said Packard Bell NEC sold about 4 million units a year where Compaq is selling the same amount per quarter, and Dell’s doing the same. He said he thought there would be very little effect on the competitive landscape, adding that the Compaq, HP and others might see some incremental growth in the retail channel, but we don’t expect there to be any major changes.

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